Planning your estate? Make sure your assets are properly titled

A last will and testament is the most recognized and important tool in estate planning. Every person — regardless of the size of their estate — needs to have one. In addition to designating guardians for young children, a will can ensure that your assets are distributed according to your wishes.

But carefully creating a will with your attorney doesn't automatically mean those wishes will be carried out in the manner you intended. That requires you to take another very important step: ensuring all of your assets are properly titled.

Titling is actually a legal term that identifies how and who owns your assets. For example, do you own an asset solely or jointly with another? In estate planning, the titling or ownership structure will impact how your assets are distributed, whether or not they need to go through probate, and the amount of estate taxes that must be paid.

Let's take a closer look.

While wills are designed to control how and when your assets are disposed of upon your passing, they don't control all of your assets; only assets that fall within your probated estate are under the direction of your will. This would include property that's in your name, such as real estate, vehicles, jewelry, or other personal property. Assets with named beneficiaries, such as life insurance and annuities or your retirement, bank, and brokerage accounts, will be distributed directly to beneficiaries upon your passing, despite the wishes outlined in your will.

Consider this example: When you enrolled in your 401(k) retirement plan, you likely had to name a beneficiary for your plan. Upon your passing, the assets in your plan would automatically be distributed to the beneficiary you designated, even if your will directs that another party receive the funds. Because you have a designated beneficiary, these assets would not be part of your probated estate and, as such, would not be under the control of your will.

That's why it's essential to periodically review all the beneficiary designations of your assets to ensure they're aligned with the intentions in your will.

Another asset that's distributed according to its titling is real estate. If, for example, you own a home jointly with someone, the titling of the property would determine the disposition. Your share of the home could be distributed to your surviving spouse, to your estate, or to a third party. In states with community property, the distribution determination can be further complicated.

While a will is an important document in the distribution of one's estate, it's not the only one. A revocable trust can also help facilitate the distribution of your assets according to your wishes. Dubbed a "living trust" because it's made in your lifetime, a revocable trust can help you avoid the hassle, expense, and public exposure of probate and ensure the continuity of asset management. It also allows you to maintain financial control of your assets by naming yourself as the trustee, which gives you the freedom to move assets in and out of the trust simply by retitling them.

Though a revocable trust offers many benefits, it's not a replacement for a will. A will is still required to direct the distribution of personal assets of value which have not been included in the revocable trust, such as vehicles, furniture, collections, and other personal property.

As with your will, creating a revocable trust requires an additional critical step in your estate planning: retitling all assets to the trust. Retitling of assets could offer another benefit — minimization of estate taxes. For example, for married couples, a surviving spouse may be able to carry over a federal estate tax credit. States may have other rules that impact the titling of assets of spouses, potentially providing other tax-planning opportunities.